Do I Need a Financial Planner?

I’m more of a do-it-yourselfer when it comes to personal finance.

After years of reading every financial book I can find, making some money, losing some money, tracking our expenses, rebalancing our portfolio and talking to so-called financial experts, I came to the conclusion that nobody cares about our money as much as I do. And nobody can predict the future.

I never considered hiring a financial planner, UNTIL we amassed a sizable sum and my husband started thinking about quitting the day job.

Then I got a little nervous about my DIY finances.

Is my math correct?

Are my assumptions reasonable?

Or (gulp,) do I need to go back to work so that my husband can retire in a few years?

October was National Financial Planning Month and during the month I received a lot of e-mails about the benefits of hiring a financial planner. One of the e-mails read:

Investors with advice were found to accumulate almost 4 times more assets after 15 years than comparable non-advised investors.

Wow, that’s a pretty bold claim! But is it true?

Our FIRE goal is to have enough assets and income streams to provide $100K per year after my husband leaves the workforce, currently planned for 2020.

To ensure that we are on the right track, we decided to visit a financial planner. Make that two financial planners. See explanation below.

Financial Planner #1

Our first attempt with a financial planner was in the US. He was referred to us by close friends, automatically fulfilling the first rule of choosing a potential financial planner – check references.

I called him to arrange a 15-minute, free consultation to review his services and fees. When we started talking about our assets, his schedule suddenly cleared and we spent the next hour and a half discussing our finances.

During the consultation, I asked him several questions which I would recommend asking before hiring a financial planner.

1) For a flat fee of $1000, he would provide a personalized plan which included a detailed investment strategy.

2) For an annual fee of 1% (of our investable assets,) he would recommend and manage the investments.

We decided that it was worth the $1000 investment to get a plan, if nothing more than to check my math. Unfortunately, the planner called the next day and said that he could not work with us, since the SEC has very specific rules about dealing with clients residing outside the US.

Thanks a lot SEC.

We did decide to take action on 2 of his recommendations from the free 15-minute 1 and ½ hour consultation.

1) Transfer money from Vanguard Target Retirement 2030 to Vanguard Target Retirement 2020. He believed we were too heavily invested in equities and if the market took a downturn it would not bode well for our portfolio. Our largest single asset is my husband’s IRA, currently invested in the Vanguard Target Retirement 2030. The financial planner showed me that the returns on the Target 2020 were not much different than the Target 2030, but the risks were much greater.

2) Contact the benefits administrator of my husband’s pension plan. The plan is from a previous employer and can be accessed as early as 2020. The financial planner suggested asking the benefits administrator to run several scenarios for single annuity, joint survivor annuity and period certain.

After the meeting, I called Vanguard to move the entire balance of my husband’s IRA into the Vanguard Target Retirement 2020. Unfortunately, Vanguard would not allow me to move the money, due to SEC regulations. Unless you are a US resident, you can not make any changes or add to any investments in any US mutual fund. This includes non-reportable changes to retirement accounts, like transferring assets from one fund to another fund in the same fund family. In other words, we are stuck in the Vanguard Target Retirement 2030 until we move back to the US.

Thanks again SEC.

Financial Planner #2

This time, my husband went with me to a free 1-hour consultation with a financial planner in Canada. He was recommended by our tax accountants. We asked him the same questions as Financial Planner #1.

The meeting was very similar to the meeting with the US planner, except his fee for the detailed plan was $750. Score!

We hired him to provide us with a detailed financial plan, which included recommendations to ensure we will have enough money to sustain our lifestyle when my husband leaves the workforce. As requested, we provided him with all of our financial information, including a detailed monthly budget, a list of our assets and a wish list for retirement, like travel.

After reviewing our information, he said that he had never met anyone who nailed their net worth and their monthly budget as closely as I had.

I’m not sure if he says that to all of his clients, but I took it as a compliment anyway.

The good news was that all of my math was correct. Ditto for the assumptions. And I did not need to go back to work full time. Whew!

We walked away with a binder full of documents which included a drawdown schedule for our assets. The plan was easy to understand and included several what-if scenarios.

Being engineers, there’s nothing we love more than what-if scenarios! And yes, I’m serious.

The calculations suggested that if the annual return on our investments was less than 5%, we could run out of money at age 90. To ensure that we would not run out of money (based on a life expectancy of 100,) he suggested we make one of the following changes:

1) Invest excess cash. We had $150K sitting on the sidelines. We intentionally were keeping this money out of the market in case the loonie gains traction against the dollar or the market makes a correction.

2) Reduce or eliminate travel after age 70. We had included a travel budget of $20K per year.

3) Sell the rental property and invest the cash.

4) Increase savings.

As luck would have it, shortly after the meeting, our tenants of 5 years advised they were vacating our rental property. Suddenly, option #3 looked pretty good.

We sold the rental house in January and invested all of the proceeds in the Dogs of the Dow.

Good decision. We’re up about 16% so far this year, well ahead of the 5% recommendation.

At the end of the day, spending the $750 on a financial planner was worth the fee. It gave us confidence in our numbers. And we are even more focused on achieving our goal of total financial independence within the next 2 years.

What about you? Have you ever worked with a financial planner? What was your experience and would you recommend hiring a professional?

The benefits administrator of our retirement plans also offer free financial services, but I have not used them. I have attended several meetings for various financial services we have had through the years (tax prep, retirement info, etc.) and I have always gotten something out of attending. However, the financial advice was specific only to the services offered through the sponsor.
We decided to go to a financial planner because we wanted advice on our entire portfolio. And although he did not make specific investment recommendations, he recommended steps we could take to improve our overall performance.

I was also mostly DIY through the years. However, I think you did a smart thing by spending $750 to get some validation of where you are and where you want to be in the future. I had no idea the SEC was so strict about your investments once you leave the country. I have no plans for living outside of the US but it was still very eye-opening to hear about your experiences.

One thing I have realized is the planning needed when you start to move from the accumulation to preservation phase of your investment strategy. I think the advice of a good retirement planner may be well worth the cost. There are so many things to consider around taxes and income planning that it makes sense to get other opinions from real experts. I’ve created a mini RFP to use with potential advisors to help me figure out who I am the most comfortable with and confident in and it also sets a common criteria for these entities to respond to and keep things as apples to apples as possible. I intend to involve my CPA in this process and have him help me with my investment selections from the list of recommendations I receive.

I thought saving and investing was supposed to be the tough parts but it turns out securing it and keeping it may be just as challenging!

Thanks for your advice. I figured that investing was the fun (and easy) part, but preservation would be tricky. We definitely plan to revisit the planner within the next year or so. Our investments have done very well this year (as have most,) so we are trying to determine the best way to move into more conservative investments as we near FIRE.

The SEC rules have been a real pain for us. I’ve done a lot of investigation about why this happened and how to circumvent (legally) the rules. As one blogger put it, “The rules imposed by the SEC were intended to keep criminals from keeping money off-shore, however, the rules make criminals out of Expats as they try to manage their US accounts.”